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Compliance Issues
Abounded This Year
and Will Again in 2001
by: Sandra K. Meltzer
Privacy of consumer health and financial information
was among the significant compliance issues to occupy the insurance
industry in the year 2000.
E-commerce and the push among state regulators to speed up the
policy approval process were also much on the minds of compliance
professionals.
How did those issues play out, and what's ahead in compliance
for 2001?
A good many of the privacy issues sprang from significant federal
legislation. For example, the Health Insurance Portability and
Accountability Act of 1996 contains privacy mandates prohibiting
an insurance company from sharing a client's personal medical
information beyond those entities that need it to evaluate the
risk proposed for insurance.
And the Gramm-Leach-Bliley Financial Services Modernization Act
of 1999 imposes the same prohibition of sharing consumer information
but this concerns financial information, not health information.
These federal laws are now having an impact on the states, which
are now working to adopt insurance legislation to implement the
requirements as they apply to insurance products.
This year, the National Association of Insurance Commissioners
moved in this area by adopting the Privacy of Consumer Financial
and Health Information Regulation. Now, legislation on the state
level is being proposed and discussed, and the process will continue
on into next year.
As with the adoption of previous NAIC models, this is creating
an important compliance opportunity for states the opportunity
to adopt uniform legislation.
On another compliance front, technology is causing concern in
the area of e-commerce for insurance. There are at least three
faces to this issue:
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Communication between insurer and agent only. Some insurers
have made strides in using technology and maintaining compliance with the
various state requirements. For example, many insurance agents now have access
to their insurer's marketing materials and applications via the Internet. This
means they can access the appropriate state's approved marketing materials and
application by entering a state code or zip code. |
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Direct marketing to
consumers. This is in place at several insurers. It works much like direct mail
marketing. In compliance with state requirements the insurer's Web site sends
the consumer the appropriate state version of the advertising, application, and
sample policy after the consumer enters a ZIP code. The consumer fills out the
online application, which is then either accepted or rejected. If the insurer is
not licensed in that state, or if the product is not approved in that state, the
consumer is shown a screen indicating the product is not available in that
state. |
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Consumer-initiated "shopping." Web sites
for insurance quotes can now be found on the Internet. These
sites are for consumers as well as agents. However, for
consumers who initiate comparison-shopping contacts, these
sites do not always provide accurate quotes, not even for
term insurance. That's because the insurer offering the
quotes cannot provide substandard rates without having the
consumer's completed application.
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Turning to the call for "speed to
market," the term being used to refer to regulatory efforts to shorten the
policy approval process. In the past year, this call became much
louder.
At this writing, speed-to-market advocates have suggested several
methods of uniform policy form filing procedures. These include: |
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Federal Regulation. In my opinion, this approach would most likely result in the
dual federal / state regulation that exists for variable insurance products and
that the industry is beginning to see with HIPAA and GLB. The federal government
would set up certain standards on certain topics and the state would be the
enforcer for these federal mandates. But state mandated requirements would
remain in place, e.g., for life insurance, suicide, fraud, warning notices, free
look provision, etc. |
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State of domicile approval only. At one time, at
least 12 states required state of domicile approval before they would approve a
product for sale in their state or, in some cases, before they would even begin
their review. Now, only four require state of domicile approval before approving
a product for issue in their state. Therefore, state willingness to rely on
state of domicile approval has eroded over the last few years. |
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Regional committees appointed by insurance
departments would grant approval for the states in their
region. This does not seem likely because states have their
own mandated requirements that may differ from their neighboring
states.
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The most likely trend appears to be the current practice. Namely,
states maintain control over policy form approval for their own state, but they
have also enacted exemption statutes for certain products or deregulated certain
types of insurance, thus transferring the burden of compliance with state
statutes to the insurer. States then depend on market conduct examinations and
consumer complaints to discover any product that is out of
compliance.
Compliance issues such as these will demand our attention
into 2001 and are proving to be far reaching in their effect on all segments of
the insurance industry. Of course, complexity of compliance issues would be
reduced if the states would adopt uniform requirements, as encouraged by the
NAIC. |
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Reprinted with permission from National Underwriter (Life & Health / Financial Services Edition) December 18, 2000. Copyright (c) 2000 by the National Underwriter Company. All rights reserved.
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